The recession may be over — technically
It’s abundantly clear that the U.S. economy took a big plunge in March and April of 2020. The coronavirus crisis required many parts of the economy to shutter to minimize human contact to slow the virus’s spread. Economic activity declined so severely that the National Bureau of Economic Research’s Business Cycle Dating Committee, which officially declares recessions, sprung into action: February 2020 was the peak, and the U.S. was in a recession. That declaration process normally takes months. This time, it took 15 weeks, the fastest ever.
The committee hasn’t declared an official end to the recession yet, but one of its eight members says the U.S. recession is technically over.
“The recession is when the economy is going down,” said Robert Gordon, an economics professor at Northwestern University and longtime member of the recession-declaring committee. “The trough was clearly last April with unemployment at 14.7 percent and production way down as half of the country closed down. There is no way we are going to go back and revisit those trough levels of April.”
Gordon says NBER’s committee will probably end up declaring May or June 2020 as the official turning point from recession to recovery. The committee hasn’t come out and said that yet, because it is notoriously slow-moving. Plus, there is still a chance that a fast-spreading coronavirus variant could force another massive shutdown of the economy. But Gordon expects this will be “one of the shortest recessions on record.” (The current shortest on record is the six-month recession in 1980).
On Thursday, the Commerce Department reported that the U.S. economy grew at a 4 percent annualized pace in the fourth quarter from October through December. That comes after a strong rebound in the third quarter. The data supports Gordon’s view that the turning point was probably in late spring or early summer.
But for many Americans, the idea that the recession is over is laughable. It shows a disconnect between how economists and Wall Street investors think about the conditions versus how the broader public views the nation’s fortunes.
The economy is still clearly operating below its potential. Federal Reserve Chair Jerome H. Powell said Wednesday that it’s a “long way” from normal, echoing the sentiment many Americans feel.
The same thing happened during the Great Recession. NBER’s committee said the official recession lasted from December 2007 to June 2009. Yet job losses kept mounting even after that point. Unemployment hit its high point of that downturn — 10 percent — in October 2009. And the economy spent years in a “jobless recovery.”
Right now there are nearly 10 million people who lost a job in March and April and are still out of work. That’s more unemployed than in October 2009.
“It’s not unusual for the economy to be in terrible shape during the first months or even years of the recovery,” Gordon said.
Thea Lee, president of the left-leaning Economic Policy Institute put it this way: “This is not a normal recession. We are definitely in uncharted territory due to the nature of this recession.” She emphasized the especially deep losses that low-income workers, Black and Hispanic workers, and women have faced this time around.
That is why there has been a push in recent years to get policymakers in the White House, the Federal Reserve and beyond to look at a much wider array of data and perspectives as they make their assessments about the health of the economy. Simply looking at whether the economy is expanding or contracting doesn’t tell you everything — like hikers who only see that they are going up or down. They also want to know how steep the trail is and whether it’s likely to be icy or require climbing and special equipment.
In short, there’s a difference between the economy being out of a recession and being healthy.
Treasury Secretary Janet Yellen is among many economists who have pushed for policymakers to watch a dashboard of indicators, including the Black unemployment rate, which is often the last to fall, and how many people are out of work for six months or more.
People who lose a job and can’t get back to work for half a year tend to have a much harder time getting their career and finances back on track. They often end up having to take a lower-paying job or needing to retrain. Long-term unemployment skyrocketed after the Great Recession and helped contribute to alarming numbers of Americans giving up on even looking for a job.
Nearly 4 million Americans were long-term unemployed in December, the highest level in U.S. history, except for during the Great Recession.
Harvard economics professor Gabriel Chodorow-Reich predicts long-term unemployment probably will peak in February at just above 4 million and then decline, but that is contingent on getting the coronavirus under control.
“The most important policy for the overall labor market is vaccination rollout and how well that goes,” Chodorow-Reich said.
Rebekah Love of Louisville is among the millions of unemployed who still feel a deep recession. Love owned a pottery studio that had to close last March. The loss of her job — and her business — derailed her family’s life.
“I grew up poor. This has really plunged me back into what life was like at my parents’ house — poor,” said Love, a single mother of a teenager. “I’ve got no money in the bank. I am currently late on January’s rent. I don’t know how I’m going to make February rent. I think more community aid will come back online, but the money has yet to trickle down from the recent bill that was passed.”
Love, 46, has been searching for jobs without any luck. She ran the pottery business for just over two years. Before that, she was a computer programmer for more than a decade who never had any trouble landing good-paying jobs.
She’s barely getting any bites when she sends her resume out, even with her programming background. Companies and recruiters that do reach out have told her they want to make connections, but they also make it clear they aren’t ready to hire yet.
For Love and millions like her, the economy won’t be healthy until there are a lot more job openings and people back at work. That’s far more important than whether the nation is technically in a recession.